Hard Times

Vendors and partners are unable to gauge the exact extent of the 'shortage of HDD' crisis. It is predicted that the impact will continue in the Q1 of 2012. The monsoon flooding in Thailand that closed down a dozen or more hard drive manufacturing and supply plants, has caused around 40% shortage in demand globally. The other big hit will mean millions of few PC shipments in the Q1 of 2012. According to the market research firm IHS iSuppli, the floods will result in a 3.8 mn unit shortfall compared to the previous IHS forecast issued in August.

At that time, IHS was expecting 88 mn unit shipments in the Q1 of 2012. Now it expects to ship 84.2 m PC units. The new forecast will represent an 11.6% sequential decline from 95.3 mn units shipped in the Q4 of 2011.

Manufacturers Association of IT Industry (MAIT) foresees big impact of global IT supply chain disruptions on India as the Thailand calamity disrupts global supply chain for key components of the IT Industry.

According to Alok Bhardwaj, president, MAIT, "The immediate impact is being felt for bulk supplies to government bodies like Elcot and DGS&D. We are keeping all state and central government ministries informed about the situation. Meanwhile all laptop and desktop companies operating in India are reaching out to customers to request their patience. The association has appealed to the government and consumers to allow longer delivery period to combat the sudden shrinkage in the supply situation."

Gartner, a research and advisory firm has predicted that problem will continue in the next few quarters. Speaking to the DQ Channels, Vishal Tripathi, principal analyst, Gartner said, "It depends on how soon the crisis ends in Thailand but gradually they are getting back on their feet but overall the magnitude is so huge that the problem might stand for 2-3 quarters. The prices will definitely go up and for some time the vendors can absorb the cost, after that willingly or unwillingly they will be forced to pass on the customers. In coming quarters the consumers will definitely hold back their purchase."

DQ Channels also spoke to some of the major laptop and component players to find out the impact of hard drive crisis on their businesses. HP came out with its release which said, "Given the uncertainty associated with the situation, we expect continued headwinds related to the flooding in Thailand, affecting HDD supply primarily within our personal systems group, but also in servers, storage and our imaging and printing group. HP is in constant touch with its employees, customers and suppliers to optimize business continuity and actively manage this dynamic situation."

Rajesh Thadani, head, consumer business unit, Lenovo India said, "As of now we do not find much impact of the Thailand crisis. However, there will be an impact in the next quarter of 2012. Although it is a challenge, but it has opened a new opportunity for our other product categories such as consumer desktops, which is even cheaper than an assembled PCs."

But the distributors are seeing the impact going deeper. VK Bhandari of Supertron Electronics said, "The shortage is evident. It is very difficult to identify the extent of the shortage as Seagate is not confirming on the issue. The demand has slowed and delivery is very less due to the price hike. The OEMs have already revised the price but very small quantities are supplied to India."

The Indian market is not a matured one and often most of the products come with discounts unlike Canada and Australia. It then becomes anticipatory that most of the vendors try to focus their sale of products in countries like Canada, etc. Voicing the extent of the situation, Rajeev Mehta, CEO, Zest Systems said, "There is a lot of delay in delivery and it is really a bad situation. The picture is that most OEMs will attain normalcy by end of January. All the orders which got closed earlier are getting delayed and we are facing the loss. There is a world-wide shortage of hard disks and India is one of the negative markets for OEMs, so we are facing the shortage and it will take time to regain."

Looking at the market situation, Dell had also issued a statement. Talking to go-to-market strategy on the following, its spokesperson added, "We have worked through various forms of industry supply shortages in the past and each brings different variables into play. But we have found our operating model to be very adaptable and effective at managing through these situations in an optimized manner."

Another area which has also been adversely impacted is assembled PCs. The prices of assembled desktops have increased by '3,000. But for the branded PCs, the prices are yet to be passed on the consumers and all major vendors are speculating on the extent of it.

In response to the shortage, PC manufacturers are planning to increase their prices. S Rajendran, chief marketing officer, Acer pointed out, "The industry is currently facing a huge task with the appreciation in the US dollar rate. It has witnessed almost 18% hike and this will be extremely difficult for any company to absorb. The second thing is the hardware drive availability. Being a global player with strong strategic relationships with vendors, the impact for us may be more muted from HDD availability than other smaller/local players. The worsening dollar-rupee rate in combination with reduction in supplies of HDD will have its impact on the product pricing. The net effect will easily be in double digits. The situation is expected to settle down by the end of Q1 2012 and we are anticipating that by the middle of next quarter, normalcy will be restored."

In the midst of all this when the DQ Channels, asked Rajendran about any alternative to mitigate the situation, he replied, "India being an extremely price sensitive market, we have very limited scope to look at other options like using the SSD. Based on the Indian consumer's mindset, their preferences and buying behavior, we believe that the market is yet to mature and open to make a transition. Hence we have not considered opting for any such alternatives."

While Rajan Sharma, VP, sales and marketing, Digilite said, "Since SATA prices have gone up due to the shortage in the market and will remain high in the coming year as well, we have introduced parallel and IDE port motherboard to beat SATA HDD shortage. As we manufacture our motherboards in India itself, it gives us tremendous advantage in terms of economy of scale and helps to serve our customers on priority.

Both Seagate and Western Digital have announced that the drive shortage will continue in Q1 of 2012 following the massive floods in Thailand, where close to 30% of drives are manufactured. The region is also responsible for 70% of the components that go into manufacturing hard drives. Adding to that, one of the major hard drive manufacturers, Western Digital, which produces 60% of their drives in Thailand admits in a release, "The complexity and the dynamics of the situation that will require extensive rebuilding of the Thai people and government bring unprecedented challenges to the HDD industry for multiple quarters."

After the problem, many companies such as Simmtronics Semiconductor, which also manufacture HDD is making some profit. Inderjeet Sabarwal, MD, Simmtronics Semiconductor said, " The market has slowed but our sales have gone up by 20-25%.